FY 27 Proposed Operating Budget

of conservatively managing expenditures and planning for the possibility of economic downturns, or

other uncontrollable and unexpected economic forces in recent years, has allowed for steady and

consistent operation.

Second, the fund balance contributes to Harford County's enviable bond ratings, which are

especially important in lowering the c ounty’s borrowing costs. In rating the county's

creditworthiness, the rating agencies will review the fund balance when assigning their debt

ratings. They will view a county with strong reserves more favorably.

A new assigned component of fund balance, the revenue volatility cap, is also recommended

by the committee. This approach, modeled after the State of Maryland, is not intended to be a long

term reserve. It is intended to be a smoothing mechanism for volatile income tax revenue and over

the long-term should not result in additional fund balance. When income tax exceeds 150% of the

long-term average of 6.0%, or 9.0%, the excess revenue will be assigned in fund balance for future

use. That future use is when income tax is less than 50% of the long-term average, or 3.0%, in which

case the revenue will drop from assigned fund balance and can be used for budgeted expenditures.

Typically, fund balance should be used for one-time expenditures; however, fund balance from the

revenue volatility cap can be used for on-going expenditures as well.

Finally, the committee was made aware that the rating agencies advised that the c ounty’s total

fund balance, based on its current revenues, should be at least $150.0 million. The committee

endorses this recommendation.

Recommendations - General Fund Budget

Based upon our review and analysis of procedures already outlined, the committee

recommends that the FY 2027 General Fund Budget increase the FY 2026 Net Adjusted General

Fund Budget, of $766.0 million, by 8.3%. This represents approximately $829.3 million in ongoing

revenues for FY 2027. The Committee feels very confident in the property tax component of this

growth rate, which is about half of the overall growth rate. The mechanism by which Maryland

reassesses properties provides near certainty for counties to budget this important revenue in the

upcoming year. Income tax, however, is where all the uncertainty lies and unfortunately there are

numerous sources of that uncertainty. This includes the possibility of a recession in Maryland,

the volatility of reconciling distributions, possible changes in both state and federal tax legislation

and the mechanical aspects of how the local income tax is collected and disbursed. There was

disagreement among committee members about exactly how all of these factors will impact Harford

County; however, there was unanimous agreement that we should employ a very conservative

approach to our income tax forecast. In conclusion, the committee felt comfortable that the two

different models, which viewed the data through a conservative and lower risk lens came to a very 75